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Measuring the market risk of freight rates: A forecast combination approach

Research output: Contribution to journalJournal article

Published
<mark>Journal publication date</mark>1/03/2018
<mark>Journal</mark>Journal of Forecasting
Issue number2
Volume37
Number of pages24
Pages (from-to)201-224
Publication statusPublished
Early online date1/08/17
Original languageEnglish

Abstract

This paper addresses the issue of freight rate risk measurement via value at risk (VaR) and forecast combination methodologies while focusing on detailed performance evaluation. We contribute to the literature in three ways: First, we reevaluate the performance of popular VaR estimation methods on freight rates amid the adverse economic consequences of the recent financial and sovereign debt crisis. Second, we provide a detailed and extensive backtesting and evaluation methodology. Last, we propose a forecast combination approach for estimating VaR. Our findings suggest that our combination methods produce more accurate estimates for all the sectors under scrutiny, while in some cases they may be viewed as conservative since they tend to overestimate nominal VaR.